The Trade Gap Widens In March - May 10, 2012

According to data issued by the U.S. Commerce Department earlier this morning, the nation's trade deficit widened materially in March, increasing from a downwardly revised shortfall of $45.4 billion in February, to a gap of $51.8 billion in March, the latest month for which such internationally based figures are available. Originally, the February trade gap had been estimated at $46.0 billion. Meanwhile, expectations had been for a trade deficit of $50.0 billion for March.

All told, exports soared to $186.8 billion in March from $181.5 billion in February, while imports into our country jumped to $238.6 billion in March from $226.9 billion in February.

The widening deficit could well lead to some modest downward revisions, all things being equal, in the first-quarter gross domestic product. Initially, that metric, which takes in all domestic activity, plus exports minus imports, was estimated to have increased by 2.2%. Note that a revision to opening-quarter GDP will be forthcoming later this month.

Contributing to the widening shortfall was a spike in oil prices in March, as crude had shot up to around $108 a barrel at one point during the month, while a gallon of gasoline had crept up to close to $4.00. Those respective uptrends have since reversed on economic growth concerns around the globe, with oil futures on the New York Mercantile Exchange sinking to below $97 a barrel in recent days, and gasoline backtracking as well, with a gallon of regular gas at many stations now below $3.80.

One of the bigger problems in the trade situation is the widening deficit with China, which is now the second largest economy in the world. The trade gap with that nation increased by almost 12% in March, to $21.7 billion, or more than 40% of the aggregate shortfall.

Overall, this was not an alarming report, notwithstanding the composite increase in the deficit, in part, we think, because there is a good chance that the shortfall will have narrowed in April and could possibly do so in May, as falling oil prices should help the situation. Lesser economic strength in the euro zone and slowing growth in China may also be factors going forward that will need to be watched.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.